Feb

28

Book Review: The Big Money

February 28, 2007 |

The Big Money: Seven Steps to Picking Great Stocks and Finding Financial Security from Frederick R. Kobrick.The book is about picking a few stocks that grow 10x or even 100x (10 or even 100 times) in value over the medium term. The rationale is that you only need a single investment of $10,000 on a stock that climbs 100x in value in a period of 10 to 20 years to make a million dollars (or 10 $2,000 investments that climb 50x each, but you get the idea). The author doesn’t asks people to bet the house on growth stocks. He even tells you to keep your core investments in relatively safe and conservative growth stocks and concentrate on picking a few “wealth” stocks that will truly make you rich.

One of the most important factors to look at is consistency / repeatability: look at what the company said they will do, how they will measure success, and how they did compared to that measurement of success – and make sure they are improving on by their own standards every quarter. This does requires observing companies for long periods of time, both before the purchase and during ownership of the stock.

The book recomends picking companies with good “BASM”:

  • Business model, how they grow to be profitable.
  • Assumptions
  • Strategy
  • Management

He outlines seven steps to correctly take advantage of the BASM analysis. The ones I find most important of the seven are knowledge in the company finances, markets, and business enviroment, patience to watch the company build itself as a market leader, and buy and sell disciplines. Buy disciplines: all of: compelling valuations, high earnings growth, management that executes. Sell disciplines: any of: Target price reached, change in management or strategy, or failure to execute.You also want to look for companies that can really address a huge market, not niche markets. Companies that spend money on customer needs, so that they can retain those customers and assure repeatability. Creativity and innovation also assures that the company can repeat success and grow with new products and services. And upper management leaves nothing in operations to chance.

I do not think is an all inclusive book on stock picking. But it sure can improve your hit ratio on great companies that will dramatically increase the value of your portfolio. It is not a starter’s book on personal finance or even the stock markets, you probably want to read it after you read Learn to Earn: A Beginner’s Guide to the Basics of Investing and Business from Peter Lynch or some other book that teaches the basics of stock investing.


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